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Dubai property prices continue drop
'Market cannot absorb additional supply unless the population grows.'
August 1, 2010 2:53 by Samuel Potter
Colliers International, the UAE-based real estate consultant, has recorded a 4 percent drop in house prices in Dubai between the first and second quarters of this year.
The index slipped 5 basis points from 119 in Q1 2010 to 114 in Q2 2010, while the blended average house price for Q2 2010 was approximately AED 1,014 per ft2 (AED 10,915/m2), down from AED 1,061 per ft2 (AED 11,420/m2) in the first quarter.
Despite the second quarter slide, the index still shows a 7 percent increase in overall house price values year-on-year from Q2 2009 to Q2 2010. However, Colliers International cautions that forthcoming housing supply and declining rental incomes are likely to put downward pressure on house prices moving forward.
“Compared to the extreme fluctuations recorded by the HPI from ‘08 to ‘09, when we had a 50 percent increase in house prices before plummeting to 2007 levels, a 4 percent decrease in this quarter is a relatively modest change. In the last 12 months we’ve seen the index moving only 1.8 percent from the average value of 115 index points, indicating a measure of stability over the past year. However, we anticipate a further slowdown and we have an ongoing concern of the new supply entering the market, which will further impede recovery,” said Ian Albert, Regional Director at Colliers International.
The real estate consultancy expects around 33,000 units to be released onto the market by the end of 2010, down from its earlier estimate of 41,000 following project delays or rescheduling. However, given Dubai’s history so far, a large number of these units may not be delivered on time and may cross over into 2011.
“There are already more than 340,000 residential properties in Dubai with an average occupancy rate of 87 percent, with further declines anticipated. The market simply cannot absorb the additional supply unless the population grows and/or the release of stock is slowed down,” explained Albert.
The situation is compounded by dwindling rents in the emirate with Dubai’s overbuilt residential market contributing to more than a 50 percent decline in average rental rates since 2008, discouraging ownership and further dampening demand.
“Although this is good news for tenants, a reduction in the income generation potential of a property impacts negatively on its market value, making it less attractive to investors. This will be another factor to monitor over coming quarters,” said Albert.
The index, compiled using actual mortgage transaction data from a consortium of financial institutions, showed transactions increased by 15 percent in Q2 2010 compared to Q1 2010. Despite the increase, Colliers International said demand remains sluggish.
According to the repport, apartment prices decreased by 5 percent in Q2, villa prices by 3 percent and townhouse prices by 8 percent.